Amelia,Inc. ,a domestic corporation,has worldwide taxable income of $8 million,including a $600,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's post-1986 undistributed E & P are $18 million and it has paid $12 million of foreign income taxes attributable to these earnings.What is Amelia's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

Question

Quizplus · Accepted Answer

Amelia, Inc. is eligible for deemed paid foreign tax credit related to the dividend received from ForCo. The calculation of the deemed paid foreign tax credit is based on the ratio of foreign taxes deemed paid to the foreign corporation's earnings and profits attributable to the dividend. Therefore, the deemed paid foreign tax credit related to the dividend received can be calculated as follows:

Deemed paid foreign taxes = Foreign income taxes paid by ForCo × (Dividend/ForCo's post-1986 undistributed E&P)

Deemed paid foreign taxes = $12 million × ($600,000/$18 million)

Deemed paid foreign taxes = $400,000

Therefore, the deemed paid foreign tax credit related to the dividend received by Amelia, Inc. is $400,000. The correct answer is B.